CHAPTER 4 Environmental Scanning
and Industry Analysis
Environmental Scanning
-is the monitoring, evaluation and
dissemination of information from the
external and internal environment to key
people within the organization a corporation
uses this tool to avoid strategic surprise
and to ensure its long term health
Environmental scanning is the process of
collecting, analyzing, and disseminating
information about the external environment
in which an organization operates. This
includes monitoring changes and trends in
the economic, political, social, technological,
and
environmental
aspects
of
the
organization's external environment.
The purpose of environmental scanning is
to identify opportunities and threats that
may impact the organization's ability to
achieve its objectives. By staying informed
about changes in the external environment,
organizations can better adapt to changing
conditions and make more informed
strategic decisions.
Identifying External Environment Variables
Natural Environment
- includes physical resources, wildlife
and climate that are an inherent part
of existence on Earth
Societal Environment
- is mankind's social system that
includes general forces that do not
directly touch on the short run
activities of the organization that
can, and often do, influence its long
run decisions
-
Factors:
Economic
Factors,
Technological Factors, Political-legal
Factors, Sociocultural Factors
Task Environment
- includes those elements or groups
that directly affect a corporation
and, in turn, are affected
Industry Analysis
- refers to an in-depth examination of key
factors
within
a
corporation's task
environment
Industry analysis is the process of
examining the external factors that affect a
particular industry, such as its competitive
structure,
market
trends,
regulatory
environment, and technological changes. It
is an essential component of strategic
planning
and
decision-making
for
businesses operating in a specific industry.
The purpose of industry analysis is to
understand the dynamics of the industry,
including the behavior of competitors,
suppliers, and customers, and to identify
opportunities and threats that may affect
the industry's profitability and growth
prospects
Scanning the Societal
STEEP ANALYSIS
Environment:
Trends in the economic part of the
societal environment can have an obvious
impact on business activity. For example, an
increase in interest rates means fewer sales
of major home appliances. Why? A rising
interest rate tends to be reflected in higher
mortgage rates. Because higher mortgage
rates increase the cost of buying a house,
the demand for new and used houses
tends to fall.
Changes in the technological part
of the societal environment can also
have a great impact on multiple industries.
Improvements in computer microprocessors
have not only led to the widespread use of
personal computers but also to better
automobile engine performance in terms of
power and fuel economy through the use of
microprocessors to monitor fuel injection.
Technological breakthroughs that having
significant impact on many industries
(George Washington University)
1.
Portable information devices and
electronic networking: Combining the
computing power of the personal computer,
the networking of the Internet, the images of
the television, and the convenience of the
telephone
2.
Alternative energy sources: The
use of wind, geothermal, hydroelectric,
solar, biomass, and other alternative energy
sources should increase considerably.
modified to produce more needed vitamins
or to be less attractive to pests and more
able to survive.
6.
Smart, mobile robots: Robot
development has been limited by a lack of
sensory devices and sophisticated artificial
intelligence systems.
Trends in the political–legal part of the
societal environment have a significant
impact not only on the level of competition
within an industry but also on which
strategies
might
be
successful.
Demographic trends are part of the
sociocultural aspect of the societal
environment.
EIGHT CURRENT
SOCIOCULTURAL
TRENDS ARE TRANSFORMING NORTH
AMERICA AND
THE REST OF THE
WORLD:
1. Increasing environmental awareness
3.
Precision
farming:
The
computerized management of crops to suit
variations in land characteristics will make
farming more efficient and sustainable
2. Growing health consciousness
4.
Virtual personal assistants: Very
smart computer programs that monitor
email, faxes, and phone calls will be able to
take over routine tasks, such as writing a
letter, retrieving a file, making a phone call,
or screening requests.
5. Declining mass market
5.
Genetically altered organisms: A
convergence
of
biotechnology
and
agriculture is creating a new field of life
sciences. Plant seeds can be genetically
3. Expanding seniors market
4. Impact of Generation Y Boomlet
6. Changing pace and location of life
7. Changing household composition
8. Increasing diversity of workforce and
markets
Scanning the Task Environment
THREAT NEW ENTRANTS
New entrants to an industry typically bring
to it new capacity, a desire to gain market
share, and substantial resources.
Entry barrier is an obstruction that makes it
difficult for a company to enter an industry.
A corporation’s scanning of the environment
includes analyses of all the relevant
elements in the task environment. These
analyses take the form of individual reports
written by various people in different parts of
the firm.
PORTER’S APPROACH TO INDUSTRY
ANALYSIS
Some of the possible barriers to entry
are:
Economies of scale, Product
differentiation
, Capital requirements
,Switching costs, Access to distribution
channels, Cost disadvantage
Rivalry Among Existing Firms
1. Number of competitors
2. Rate of industry growth
3. Product of service characteristic
4. Amount of fixed cost
5. Capacity
6. Height of exit barriers
7. Diversity of rivals
THREAT OF SUBSTITUTE
OR SERVICE
PRODUCTS
Substitute product- a product that
appears to be different but can satisfy the
same need as another product.
“The collective strength of these forces,” he
contends, “determines the ultimate profit
potential in the industry, where profit
potential is measured in terms of long-run
return on invested capital.”
Substitutes limit the potential returns
of an industry by placing a ceiling on the
prices firms in the industry can profitably
charge.
BARGAINING POWER OF BUYERS
Group of buyers is powerful if some of the
following factors hold true:
·
A buyer purchases a large proportion of
the seller’s product or service
·
A buyer has the potential to integrate
backward by producing the product itself
·
A purchasing industry buys only a small
portion of the supplier group’s goods and
services and is thus unimportant to the
supplier
·Relative Power of Other Stakeholders
· Alternative suppliers are plentiful because
the product is standard or undifferentiated
A sixth force should be added to Porter's
list that includes a variety of stakeholder
groups from the task environment. Some of
the groups are:
·
1.
Governments
·
The purchased product represents a
high percentage of a buyer’s costs, thus
providing an incentive to shop around for a
lower price
2.
Local communities
3.
Creditors
4.
Trade association
·
A buyer earns low profits and is thus
very sensitive to
costs and service
differences
5.
Special-Interest groups
6.
Unions
·
The purchased product is unimportant
to the final quality or price of a buyer’s
products or services and thus can be easily
substituted
without affecting the final
product adversely
7.
Shareholders
8.
Complementors
Changing suppliers costs very little
BARGAINING POWER OF SUPPLIERS
Categorizing International Indusries
A supplier or supplier group is powerful if
some of the following factors apply:
Multidomestic industries
·
The supplier industry is dominated by a
few companies, but it sells to many
are specific to each country or
group of countries
·
Its product or service is unique and/or it
has built up switching costs
This type of international industry is
a collection of essentially
domestic
industries such as retailing and insurance
·
Substitutes are not readily available
·
Suppliers are able to integrate forward
and compete directly with their present
customers
are essentially independent of the
activities of the MNC's subsidiaries in other
countries.
-
Global Industries
-
in contrast, it operates worldwide
In this industry an MNC's activities
in one country are significantly affected by
its activities in other countries.
Examples are television
aircraft, automobiles and etc...
sets,
Regional Industries
MNC's primarily coordinate their
activities within regions, such as Americas
or Asia.
MNC's primarily coordinate
activities within regions,
their
Differentiate
1. Multidomestic Industry: A
Multidomestic Industry operates
in multiple countries, but each
location operates independently
and caters to the local market's
specific needs. For example, a
fast-food chain may offer
different menus in different
countries, depending on the local
tastes and preferences. The key
characteristic of a Multidomestic
Industry is that it tailors its
products and services to meet
the specific needs of each local
market.
2. Global Industry: A Global Industry
operates in multiple countries
and has a standardized approach
to products and services across
all locations. A global industry
typically has a centralized
management structure and relies
on economies of scale to achieve
cost efficiencies. For example, an
automobile company may
manufacture the same model of
car in multiple countries and sell
it with the same branding and
features.
3. Regional Industry: A Regional
Industry operates within a
specific geographic region and
caters to the needs of that region.
For example, a wine industry may
specialize in producing wines that
are specific to a particular
region's climate and soil
conditions. The key characteristic
of a Regional Industry is that it
focuses on a specific geographic
area and the needs of that area.
STRATEGIC TYPES
DEFENDERS
companies with a limited product
line that focus on improving efficiency of
their existing operations
PROSPECTORS
companies with fairly broad product
lines that focus on product innovation and
market opportunities
ANALYZERS
are corporations that operate in at
least two different product-market areas,
one stable and one variable.
dynamics quickly. As a result, the strategic
competitiveness of a company can
disappear immediately.
REACTORS
Hypercompetition
refers
to
an
environment in which there is intense
competition between a large number of
firms. This often occurs in industries
characterized by rapid technological
change, low entry barriers, and intense
rivalry among competitors. In such an
environment,
companies
must
constantly innovate, improve their
products or services, and find new ways
to stay ahead of their rivals.
are corporations that lack a
consistent
strategy-structure-culture
relationship.
DEFENDERS may excel in implementing
established strategies and ensuring
that operations run smoothly, but may
struggle with adapting to changes in
the market or industry. PROSPECTORS,
on the other hand, may be skilled at
identifying
and
pursuing
new
opportunities, but may struggle with
prioritizing and focusing on a specific
strategy.
ANALYZERS may be well-suited to
analyzing data and making informed
decisions based on research, but may
struggle with taking risks or making
decisions in fast-paced environments.
REACTORS may be skilled at quickly
adapting to changes and responding to
new challenges, but may struggle with
long-term planning and strategic
thinking.
While
hypercompetition
can
be
challenging for firms, it can also be an
opportunity for those who can embrace
change and quickly adapt to new market
conditions.
To
succeed
in
a
hypercompetitive market, companies
must be able to anticipate and respond
to changes in the market, continually
improve their products or services, and
develop new ways to differentiate
themselves from their competitors. It
requires a constant focus on innovation
and agility. By doing so, companies can
gain an advantage over their rivals and
thrive in a hypercompetitive market.
COMPETITIVE INTELLIGENCE
HYPERCOMPETITION
is a condition when the competition
is so intense, creating instability in the
market.
These
conditions require
companies
to
change
strategies
continuously. Companies maneuver with
each other so that changing market
A formal program of gathering information
on a company’s competitors. Often called
business intelligence, it is one of the fastest
growing fields within strategic management.
Research indicates that there is a strong
association
between
corporate
performance and competitive intelligence
activities.
Sources of Competitive Intelligence
✦ Information brokers
market, new technologies, or new
customer segments. Threats refer to
external factors that pose a risk to the
organization, such as competition,
economic downturns, or changes in
regulations.
✦ Internet
✦ Industrial espionage
✦ Investigatory services
·
SWOT ANALYSIS
SWOT analysis is a strategic planning
tool used to identify an organization's
strengths, weaknesses, opportunities,
and threats. It involves analyzing
internal and external factors that
impact the organization's performance
and helps to identify areas of
improvement and opportunities for
growth. The acronym SWOT stands for
Strengths, Weaknesses, Opportunities,
and Threats.
Strengths refer to the internal factors
that an organization excels in, such as a
strong brand, skilled workforce, or
efficient operations. Weaknesses refer
to internal factors that an organization
needs to improve, such as outdated
technology, poor customer service, or
lack of innovation.
Opportunities refer to external factors
that an organization can leverage to its
advantage, such as changes in the
SWOT analysis is typically conducted
as part of the strategic planning
process and can be used to inform the
development of strategies to address
the
organization's
weaknesses,
capitalize on its strengths, take
advantage of opportunities, and
mitigate threats. It is a flexible and
adaptable tool that can be used by
organizations of any size or industry to
identify areas for improvement and
growth, and to develop effective
strategies to achieve their goals.
-
-
-
A
Strategy
formulation,
often
referred to as strategic planning or
long-range planning, is concerned
with developing a corporation’s
mission, objectives, strategies, and
policies.
It begins with situation analysis: the
process of finding a strategic fit
between external opportunities and
internal strengths while working
around external threats and internal
weaknesses.
SWOT analysis should not only
result in the identification of a
corporation’s
distinctive
competencies—the
particular
capabilities and resources that a firm
possesses and the superior way in
which they are used—but also in the
identification of opportunities that the
firm is not currently able to take
advantage of due to a lack of
appropriate resources.
SWOT analysis, by itself, is not a
panacea. Some of the primary criticisms
of
SWOT analysis are:
● It generates lengthy lists.
● It uses no weights to reflect priorities.
A Resource Based
Organizational Analysis
Approach
to
Analysts must also look within the
corporation itself to identify internal
strategic factors—critical strengths and
weaknesses that are likely to determine
whether a firm will be able to take
advantage of opportunities while avoiding
threats. This internal scanning, often
referred to as organizational analysis, is
concerned with identifying and developing
an organization’s resources and
competencies.
● It uses ambiguous words and phrases.
● The same factor can be placed in two
categories (e.g., a strength may also be
a weakness).
● There is no obligation to verify opinions
with data or analysis.
● It requires only a single level of analysis.
● There is no logical link to strategy
implementation.
Core and Distinctive Competencies
Resources - Are an organization's asset
and are thus the basic building blocks of
the organization. They include tangible
assets, such as its plant, equipment,
finances, locations, human assets, etc.
Capabilities - Refer to a corporation's
ability to exploit resources. They consist of
business processes and routines that
manage the interaction among resources to
turn inputs to outputs.
Competencies - Is a cross-functional
integration and coordination of capabilities.
Generating Alternative
Using a TOWS Matrix
Strategies
by
The TOWS Matrix (TOWS is just another
way of saying SWOT) illustrates how the
external opportunities and threats facing a
particular corporation can be matched with
that company’s internal
strengths and
weaknesses to result in four sets of possible
strategic alternatives.
Barney, in his VRIO framework of analysis,
proposes four questions to evaluate a firm’s
competencies:
1. Value: Does it provide customer
value and competitive advantage?
2. Rareness: Do no other competitors
possess it?
3. Imitability: Is it costly for others to
imitate? 4. Organization: Is the firm
organized to exploit the resource?
Chapter
5
Internal
Organizational Analysis
Grant proposes five steps, a resource
based approach to strategy analysis.
Scanning:
1. Identify and classify the firm’s
resources in terms of strengths and
weaknesses.
2. Combine the firm’s strengths into
specific capabilities and core
competencies.
3. Appraise the profit potential of these
capabilities and competencies in
terms of their potential for
sustainable competitive advantage
and the ability to harvest the profits
resulting from their use.
4. Select the strategy that best exploits
the firm’s capabilities and
competencies relative to external
opportunities.
5. Identify resource gaps and invest in
upgrading weaknesses.
A business model is usually composed of
five elements:
•Who it serves?
•What it provides?
•How it makes money
•How it differentiates and sustains
competitive advantage?
•How it provides its product/service?
●
Customer solutions model: IBM
uses this model to make money not
by selling IBM products, but by
selling its expertise to improve its
customers’ operations. This is a
consulting model.
●
Profit pyramid model: General
Motors offers a full line of
automobiles in order to close out any
niches where a competitor might find
a position. The key is to get
customers to buy in at the
low-priced, low-margin entry point
(Saturn’s basic sedans) and move
them up to high-priced, high-margin
products (SUVs and pickup trucks)
where the company makes its
money.
●
Multi-component system/installed
base model: Gillette invented this
classic model to sell razors at
break-even pricing in order to make
money on higher-margin razor
blades. HP does the same with
printers and printer cartridges. The
product is thus a system, not just
one product, with one component
providing most of the profits.
●
Advertising model: Similar to the
multi-component system/installed
base model, this model offers its
basic product free in order to make
DETERMINING THE SUSTAINABILITY OF
AN ADVANTAGE
Durability- is the rate at which a firm’s
underlying resources, capabilities, or core
competencies depreciate or become
obsolete.
Imitability- is the rate at which a firm’s
underlying resources, capabilities, or core
competencies can be duplicated by others
●Transparency
●Transferability
●Replicability
Explicit knowledge- knowledge that can be
easily articulated and communicated.
Tacit knowledge- not easily communicated
because it is deeply rooted in employee
experience or in a corporation’s culture.
Business Model
A business model is a company’s method
for making money in the current business
environment.
money on advertising. Originating in
the newspaper industry, this model
is used heavily in commercial radio
and television. Internet-based firms,
such as Google, offer free services
to users in order to expose them to
the advertising that pays the bills.
This model is analogous to Mary
Poppins’ “spoonful of sugar (content)
helps the medicine (advertising) go
down.”
●
●
●
●
Switchboard model: In this model a
firm acts as an intermediary to
connect multiple sellers to multiple
buyers. Financial planners juggle a
wide range of products for sale to
multiple customers with different
needs. This model has been
successfully used by eBay and
Amazon.com.
Time model: Product R&D and
speed are the keys to success in the
time model. Being the first to market
with a new innovation allows a
pioneer like Sony to earn high
margins. Once others enter the
market with process R&D and lower
margins, it’s time to move on.
Efficiency model: In this model a
company waits until a product
becomes standardized and then
enters the market with a low-priced,
low-margin product that appeals to
the mass market. This model is used
by Wal-Mart, Dell, and Southwest
Airlines.
Blockbuster model: In some
industries, such as pharmaceuticals
and motion picture studios,
profitability is driven by a few key
products. The focus is on high
investment in a few products with
high potential payoffs—especially if
they can be protected by patents.
●
Profit multiplier model: The idea of
this model is to develop a concept
that may or may not make money on
its own but, through synergy, can
spin off many profitable products.
Walt Disney invented this concept by
using cartoon characters to develop
high-margin theme parks,
merchandise, and licensing
opportunities.
●
Entrepreneurial model: In this
model, a company offers specialized
products/services to market niches
that are too small to be worthwhile to
large competitors but have the
potential to grow quickly. Small, local
brew pubs have been very
successful in a mature industry
dominated by Anheuser-Busch. This
model has often been used by small
high-tech firms that develop
innovative prototypes in order to sell
off the companies (without ever
selling a product) to Microsoft or
DuPont.
●
De Facto industry standard
model: In this model, a company
offers products free or at a very low
price in order to saturate the market
and become the industry standard.
Once users are locked in, the
company offers higher-margin
products using this standard. For
example, Microsoft packaged
Internet Explorer free with its
Windows software in order to take
market share from Netscape’s Web
browser
Value Chain Analysis
Value chain is a linked set of value-creating
activities that begin with basic raw materials
coming from suppliers, moving on to a
series of value-added activities involved in
producing and marketing a product or
service, and ending with distributors getting
the final goods into the hands of the ultimate
consumer.
Industry Value Chain Analysis
The value chains of most industries can be
split into two segments, upstream and
downstream segments.
Upstream - includes all activities related to
the organization's suppliers: those parties
that source raw material inputs to send to
the manufacturer.
Downstream - refers to activities
post-manufacturing, namely distributing the
product to the final customer.
A company’s center of gravity is the part
of the chain that is most important to the
company and the point where its greatest
expertise and capabilities lie—its core
competencies
CORPORATE VALUE CHAIN ANALYSIS
According to Porter, “Differences among
competitor value chains are a key source of
competitive advantage.”26 Corporate value
chain analysis involves the following three
steps
1. Examine each product line’s value chain
in terms of the various activities involved in
producing that product or service:
2. Examine the “linkages” within each
product line’s value chain
3. Examine the potential synergies among
the value chains of different product lines or
business units:
BASIC ORGANIZATIONAL STRUCTURES
Simple structure has no functional or
product categories and is appropriate for a
small, entrepreneur-dominated company
with one or two product lines that operates
in a reasonably small, easily identifiable
market niche.
Functional structure is appropriate for a
medium-sized firm with several product
lines in one industry. Employees tend to be
specialists in the business functions that are
important to that industry, such as
manufacturing, marketing, finance, and
human resources.
Divisional structure is appropriate for a
large corporation with many product lines in
several related industries. Employees tend
to be functional specialists organized
according to product/market distinctions.
Strategic business units (SBUs) are a
modification of the divisional structure.
Strategic business units are divisions or
groups of divisions composed of
independent product market segments that
are given primary responsibility and
authority for the management of their own
functional areas.
Conglomerate structure is appropriate for
a large corporation with many product lines
in several unrelated industries. A variant of
the divisional structure, the conglomerate
structure (sometimes called a holding
company) is typically an assemblage of
legally independent firms (subsidiaries)
operating under one corporate umbrella but
controlled through the subsidiaries’ boards
of directors.
Corporate culture
is the collection of beliefs, expectations, and
values learned and shared by a
corporation’s members and transmitted from
one generation of employees to another.
The corporate culture generally reflects the
values of the founder(s) and the mission of
the firm.28 It gives a company a sense of
identity: “This is who we are. This is what
we do. This is what we stand for.”
Corporate culture has two distinct
attributes, intensity and integration.
Cultural intensity is the degree to which
members of a unit accept the norms,
values, or other culture content associated
with the unit. This shows the culture’s depth.
Organizations with strong norms promoting
a particular value, such as quality at BMW,
have intensive cultures, whereas new firms
(or those in transition) have weaker, less
intensive cultures. Employees in an
intensive culture tend to exhibit consistent
behavior, that is, they tend to act similarly
over time.
Cultural integration is the extent to which
units throughout an organization share a
common culture. This is the culture’s
breadth. Organizations with a pervasive
dominant culture may be hierarchically
controlled and power-oriented, such as a
military unit, and have highly integrated
cultures.
STRATEGIC MARKETING ISSUES
Market Position and Segmentation
Market position deals with the question,
“Who are our customers?” It refers to the
selection of specific areas for marketing
concentration and can be expressed in
terms of market, product, and geographic
locations. Through market research,
corporations are able to practice market
segmentation with various products or
services so that managers can discover
what niches to seek, which new types of
products to develop, and how to ensure that
a company’s many products do not directly
compete with one another.
Marketing mix refers to the particular
combination of key variables under a
corporation’s control that can be used to
affect demand and to gain competitive
advantage. These variables are product,
place, promotion, and price. Within each of
these four variables are several sub
variables
● Product
● Place
● Promotion
● Price
Product Life Cycle
One of the most useful concepts in
marketing, insofar as strategic management
is concerned, is the product life cycle. the
product life cycle is a graph showing time
plotted against the monetary sales of a
product as it moves from introduction
through growth and maturity to decline. This
concept enables a marketing manager to
examine the marketing mix of a particular
product or group of products in terms of its
position in its life cycle.
●
●
Brand and Corporate Reputation
A brand is a name given to a company’s
product which identifies that item in the
mind of the consumer. Over time and with
proper advertising, a brand connotes
various characteristics in the consumers’
minds.
A corporate reputation is a widely held
perception of a company by the general
public. It consists of two attributes: (1)
stakeholders’ perceptions of a corporation’s
ability to produce quality goods and (2) a
corporation’s prominence in the minds of
stakeholders.
●
a good corporate reputation can be
a strategic resource. It can serve in
marketing as both a signal and an
entry barrier. It contributes to its
goods having a price premium.
Reputation is especially important
when the quality of a company’s
product or service is not directly
observable and can be learned only
through experience
STRATEGIC FINANCIAL ISSUES
•A financial manager must ascertain the
best sources of funds, uses of funds, and
control of funds.
•All strategic issues have financial
implications. Cash must be raised from
internal or external (local and global)
sources and allocated for different uses.
•The flow of funds in the operations of an
organization must be monitored.
STRATEGIC RESEARCH AND
DEVELOPMENT ISSUES
●
Choosing among alternative new
technologies to use within the
corporation,
Developing methods of embodying
the new technology in new products
and processes, and
Deploying resources so that the new
technology can be successfully
implemented.
STRATEGIC OPERATIONS ISSUES
Primary task of Operations Manager
To develop and operate a system that will
produce the required number of products or
services, with a certain quality, at a given
cost, within an allotted time.
Intermittent systems
The item is normally processed sequentially,
but the work and sequence of the process
vary.
Continuous system
are those laid out as lines on which product
can be continuously assembled or
processed
1. Experience Curve/ Learning Curve
● suggest unit production costs
decline by some fixed percentage
(commonly 20% - 30%) each time
the total accumulated volume of
production in units doubles
● the actual percentage varies by
industry and is based on many
variables: the amount of time it
takes a person to learn a new task,
scale economies, products and
process improvements and lower
raw materials cost, among others.
2. Flexible Manufacturing for Mass
Customization
●
The use of Computer-Assisted
Design and Computer Assisted
manufacturing (CAD/CAM) and
robot technology means that
learning times are shorter and
products can be economically
manufactured in small, customized
batches in a process called mass
customization.
STRATEGIC HUMAN RESOURCE
(HRM) ISSUES
Primary task of human resource
manager
● to improve the match between
individuals and jobs
● know how to use attitude surveys
and other feedback devices to
assess employees satisfaction with
their jobs and with the corporation
as a whole
Increasing Use of Teams
● Management is beginning to realize
that it must be more flexible in its
utilization of employees in order for
human resource to be classified as a
strength.
STRATEGIC HUMAN RESOURCE
(HRM) ISSUES
Union Relations and
Temporary/Part-Time Workers
● If the corporation is unionized, a
good human resource manager
should be able to work closely with
the union
Quality of Work Life and Human
Diversity
● human resource departments have
found that to reduce employee
dissatisfaction and unionization
efforts, (or, conversely, to improve
employee satisfaction and existing
union relations), they must consider
the quality of work life in the design
of jobs
STRATEGIC INFORMATION
SYSTEMS/TECHNOLOGY ISSUES
PRIMARY TASK OF THE MANAGER:
to design and manage the flow of
information in an organization in ways that
improve productivity and decision making.
Impact on Performance
1. it is used to automate existing
back-office processes
2. it is used automate individuals task
3. it is used to enhance key business
functions
4. it is used to develop competitive
advantage
Supply Chain Management
forming of networks for sourcing raw
materials, manufacturing products or
creating services, storing and distributing
the goods and delivering them to
customers and consumers
CHAPTER 6 Strategy Formulation:
Situation Analysis and Business
Strategy
Strategy formulation
- often referred to as strategic
planning or long-range planning, is
concerned with developing a
corporation's mission, objectives,
strategies, and policies.
- begins with situation analysis: the
process of finding a strategic fit
between external opportunities and
internal strengths while working
around external threats and internal
weaknesses.
SWOT
- strategic factors for a specific
company, SWOT analysis should not
only result in the identification of a
corporation's distinctive
competencies.
Some of the primary criticisms of SWOT
analysis are:
-It generates lengthy lists.
-It uses no weights to reflect priorities.
-It uses ambiguous words and phrases.
-The same factor can be placed in two
categories (e.g., a strength may also be a
weakness).
-There is no obligation to verify opinions
with data or analysis.
-It requires only a single level of analysis.
There is no logical link to strategy
implementation.
Strategic sweet spot
- Propitious niche- one of a kind
opportunity in the market that exists
only for a limited period of time but
can disappear if there are changes
in the industry.
Review of Mission and Objectives
- A reexamination of an organization's
current mission and objectives must
be made before alternative
strategies can be generated and
evaluated. Even when formulating
strategy, decision makers tend to
concentrate on the alternatives the
action possibilities rather than on a
mission to be fulfilled and objectives
to be achieved
TOWS Matrix
- (TOWS is just another way of saying
SWOT). It illustrates how the
external opportunities and threats
facing a particular corporation can
be matched with that company's
internal strengths and weaknesses
to result in four sets of possible
strategic alternatives.
Business Strategies
- Business strategy focuses on
improving the competitive position of
a company's or business unit's
products or services within the
specific industry or market segment
that the company or business unit
serves.
PORTER'S COMPETITIVE STRATEGIES
- Lower cost strategy is the ability of
a company or a business unit to
design, produce, and market a
comparable product more efficiently
-
than its competitors. (cheaper than
the competitors)
Differentiation strategy is the
ability of a company to provide
unique and superior value to the
buyer in terms of product quality,
special features, or after sale service
Industry Structure and Competitive
Strategy
Strategic rollup- was developed in the
mid-1990s as an efficient way to quickly
consolidate a fragmented industry. the
process of acquiring and merging multiple
smaller companies in the same industry and
consolidating them into a large company.
Hypercompetition- D’Aveni proposes that
it is becoming increasingly difficult to sustain
a competitive advantage for very long.
Intense
competitive in order to secure its
market position.
Frontal assault- The attacking firm goes
head to head with its competitor. It matches
the competitor in every category from price
to promotion to distribution channel.
(expensive)
Flanking maneuver- attack a part of the
market where the competitor is weak.
Bypass attack- company or business unit
may choose to change the rules of the
game. This tactic attempts to cut the market
out from under the established defender by
offering a new type of product that makes
the competitor’s product unnecessary
Encirclement- attacking company or unit
encircles the competitor’s position in terms
of products or markets or both. The
encircler has greater product variety.
Tactic- specific operating plan that details
how a strategy is to be implemented in
terms of when and where it is to be put into
action.
Guerrilla warfare- a firm or business unit
may choose to “hit and run.”
Timing tactic
- deals with when a company
implements a strategy.
- The first company to manufacture
and sell a new product or service is
called the first mover (or pioneer).
DEFENSIVE TACTICS
- usually takes place in the firm’s own
current market position as a defense
against possible attack by a rival.
- competitive advantage more
sustainable by causing a challenger
to conclude that an attack is
unattractive.
MARKET LOCATION TACTICS
- deals with where a company
implements a strategy.
OFFENSIVE TACTIC
- usually takes place in an established
competitor’s market location.
- when a business takes certain steps
against the market leader to get
RAISE STRUCTURAL BARRIERS- Entry
barriers act to block a challenger’s logical
avenues of attack. Some of the most
important, according to Porter, are to:
1. Offer a full line of products in every
profitable market segment to close off any
entry points
2. Block channel access by signing
exclusive agreements with distributors;
3. Raise buyer switching costs by offering
low-cost training to users;
4. Raise the cost of gaining trial users by
keeping prices low on items new users are
most likely to purchase
5. Increase scale economies to reduce unit
costs;
6. Foreclose alternative technologies
through patenting or licensing;
7. Limit outside access to facilities and
personnel;
8. Tie up suppliers by obtaining exclusive
contracts or purchasing key locations;
9. Avoid suppliers that also serve
competitors; and
cooperative strategies are collusion
and strategic alliances.
Collusion- active cooperation of firms
within an industry to reduce output and raise
prices in order to get around the normal
economic law of supply and demand.
conspire to work together to gain an unfair
market advantage.
Strategic Alliances- is a long-term
cooperative arrangement between two or
more independent firms or business units
that engage in business activities for mutual
economic gain. Alliances between
companies or business units have become
a fact of life in modern business.
Mutual Service Consortia
- is a partnership of similar companies
in similar industries that pool their
resources to gain a benefit that is
too expensive to develop alone,
such as access to advanced
technology.
10. Encourage the government to raise
barriers, such as safety and pollution
standards or favorable trade policies
Joint Venture
- “cooperative business activity,
formed by two or more separate
organizations for strategic purposes
Increase expected retaliation- This tactic
is any action that increases the perceived
threat of retaliation for an attack.
Lower the inducement for attack- A third
type of defensive tactic is to reduce a
challenger’s expectations of future profits in
the industry.
Licensing Arrangements
- an agreement in which the licensing
firm grants rights to another firm in
another country or market to
produce and/or sell a product. The
licensee pays compensation to the
licensing firm in return for technical
expertise.
Cooperative strategies
- to gain competitive advantage within
an industry by working with other
firms. The two general types of
Value-Chain Partnerships
- is a strong and close alliance in
which one company or unit forms a
long-term arrangement with a key
supplier or distributor for mutual
advantage.
CHAPTER 7 Strategy Formulation:
CORPORATE STRATEGY
Corporate strategy - primarily about the
choice of direction for a firm as a whole and
the management of its business or product
portfolio
3 parts that examines Corporate strategy
- directional strategy (orientation
toward growth)
- Portfolio analysis (coordination of
cash flow among units)
- corporate parenting (the building of
corporate synergies through
resource sharing and development)
Directional Strategy is composed of three
general orientations (sometimes called grand strategies):
- Growth strategies expand the company’s
activities.
- Stability strategies make no change to
the company’s current activities.
- Retrenchment strategies reduce the
company’s level of activities
3 Corporate Directional Strategies:
1. GROWTH
● Concentration
○ Vertical Growth
○ Horizontal Growth
● Diversification
○ Concentric
○ Conglomerate
2. STABILITY
● Pause/Proceed with Caution
● No Change
● Profit
3. RETRENCHMENT
●
●
●
●
Captive Company
Sell-Out/Divestment
Bankruptcy/Liquidation
Turnaround
GROWTH STRATEGIES - A corporation
can grow internally by expanding its
operations both globally and domestically,
or it can grow externally through mergers,
acquisitions, and strategic alliances.
-
-
-
-
A merger is a transaction involving
two or more corporations in which
stock is exchanged but in which only
one corporation survives.
Mergers usually occur between firms
of somewhat similar size and are
usually “friendly.”
An acquisition is the purchase of a
company that is completely
absorbed as an operating subsidiary
or division of the acquiring
corporation.
Acquisitions usually occur between
firms of different sizes and can be
either friendly or hostile. Hostile
acquisitions are often called
takeovers.
Growth is a very attractive strategy for
two key reasons:
1. Growth based on increasing market
demand may mask flaws in a
company—flaws that would be
immediately evident in a stable or
declining market.
2. A growing firm offers more
opportunities for advancement,
promotion, and interesting jobs.
Large firms are also more difficult to
acquire than are smaller ones.
Concentration - If a company’s current
product lines have real growth potential,
concentration of resources on those product
lines makes sense as a strategy for growth.
The two basic concentration strategies:
horizontal growth and vertical growth
Vertical growth - can be achieved by taking
over a function previously provided by a
supplier or by a distributor.
-
-
This may be done in order to reduce
costs, gain control over a scarce
resource, guarantee quality of a key
input, or obtain access to potential
customers.
This growth can be achieved either
internally by expanding current
operations or externally through
acquisitions.
3. Forward integration ●
●
Harrigan proposes that a company’s degree
of vertical integration can range from total
ownership of the value chain needed to
make and sell a product to no ownership at
all.
Vertical integration continuum:
●
●
Vertical Growth Results In:
●
1. Vertical Integration- the degree to which
a firm operates vertically in multiple
locations on an industry’s value chain from
extracting raw materials to manufacturing to
retailing.
●
-acquiring or developing one or more
important parts of a company's production
process or supply chain
2. Backward integration ●
●
assuming a function previously
provided by a supplier./expanding
your role (buys another company
that supplies the products or
services needed for production.)
going backward on an industry’s
value chain
assuming a function previously
provided by a distributor
going forward on an industry’s value
chain ("cutting out the middleman.")
Full Integration - a firm internally
makes 100% of its key supplies and
completely controls its distributors.
Taper Integration - (also called
concurrent sourcing), a firm
internally produces less than half of
its own requirements and buys the
rest from outside suppliers
(backward taper integration).
Quasi Integration - a company
does not make any of its key
supplies but purchases most of its
requirements from outside suppliers
that are under its partial control
(backward quasi-integration).
Long-Term Contracts - are
agreements between two firms to
provide agreed-upon goods and
services to each other for a specified
period of time.
Horizontal Growth - A firm can achieve
horizontal growth by expanding its
operations into other geographic locations
and/or by increasing the range of products
and services offered to current markets.
-
results in horizontal
integration—the degree to which a
firm operates in multiple geographic
-
locations at the same point on an
industry’s value chain.
can be achieved through internal
development or externally through
acquisitions and strategic
alliances with other firms in the
same industry.
INTERNATIONAL ENTRY OPTIONS FOR
HORIZONTAL GROWTH
Some of the most popular options for
international entry are as follows:
Exporting - A good way to minimize risk
and experiment with a specific product is
exporting, shipping goods produced in the
company’s home country to other countries
for marketing.
Acquisitions - A relatively quick way to
move into an international area is through
acquisitions— purchasing another company
already operating in that area.
Green-Field Development - If a company
doesn’t want to purchase another
company’s problems along with its assets, it
may choose green-field development and
build its own manufacturing plant and
distribution system.
Production Sharing - Coined by Peter
Drucker, the term production sharing means
the process of combining the higher labor
skills and technology available in developed
countries with the lower-cost labor available
in developing countries. Often called
outsourcing.
Licensing - Under a licensing agreement,
the licensing firm grants rights to another
firm in the host country to produce and/or
sell a product. The licensee pays
compensation to the licensing firm in return
for technical expertise.
Turnkey Operations - typically contracts for
the construction of operating facilities in
exchange for a fee. The facilities are
transferred to the host country or firm when
they are complete.
Franchising - Under a franchising
agreement, the franchiser grants rights to
another company to open a retail store
using the franchiser’s name and operating
system. In exchange, the franchisee pays
the franchiser a percentage of its sales as a
royalty.
BOT Concept - The BOT (Build, Operate,
Transfer) concept is a variation of the
turnkey operation. Instead of turning the
facility (usually a power plant or toll road)
over to the host country when completed,
the company operates the facility for a fixed
period of time during which it earns back its
investment plus a profit.
Joint Ventures - Forming a joint venture
between a foreign corporation and a
domestic company is the most popular
strategy used to enter a new country.
Companies often form joint ventures to
combine the resources and expertise
needed to develop new products or
technologies.
Management Contracts - offer a means
through which a corporation can use some
of its personnel to assist a firm in a host
country for a specified fee and period of
time.
DIVERSIFICATION - According to strategist
Richard Rumelt, companies begin thinking
about diversification when their growth has
plateaued and opportunities for growth in
the original business have been depleted.
The two basic diversification strategies
are concentric and conglomerate.
●
Concentric (Related)
Diversification - Growth through
concentric diversification into a
related industry may be a very
appropriate corporate strategy when
a firm has a strong competitive
position but industry attractiveness is
low.
- The search is for synergy,
the concept that two
businesses will generate more profits
together than they could be separated. The
point of commonality may be similar
technology, customer usage, distribution,
managerial skills, or product similarity.
●
Conglomerate (Unrelated)
Diversification - When
management realizes that the
current industry is unattractive and
that the firm lacks outstanding
abilities or skills that it could easily
transfer to related products or
services in other industries, the most
likely strategy is conglomerate
diversification—diversifying into an
industry unrelated to its current one.
CONTROVERSIES IN DIRECTIONAL
GROWTH STRATEGIES:
Realizing that an acquired company must
be carefully assimilated into the acquiring
firm’s operations, Cisco uses three criteria
to judge whether a company is a suitable
candidate for takeover:
●
It must be relatively small.
●
●
It must be comparable in
organizational culture.
It must be physically close to one of
the existing affiliates.
STABILITY STRATEGIES - A corporation
may choose stability over growth by
continuing its current activities without any
significant change in direction.
3 Stability Strategies:
1. Pause/proceed-with-caution
strategy - is, in effect, a timeout—an
opportunity to rest before continuing
a growth or retrenchment strategy.
2. No-Change Strategy - is a decision
to do nothing new—a choice to
continue current operations and
policies for the foreseeable future.
3. Profit Strategy - is a decision to do
nothing new in a worsening situation
but instead to act as though the
company’s problems are only
temporary.
- is an attempt to artificially
support profits when a
company’s sales are
declining by reducing
investment and short-term
discretionary expenditures.
RETRENCHMENT STRATEGIES - A
company may pursue retrenchment
strategies when it has a weak competitive
position in some or all of its product lines
resulting in poor performance—sales are
down and profits are becoming losses.
4 Retrenchment Strategies:
1. Turnaround Strategy - emphasizes
the improvement of operational
efficiency and is probably most
appropriate when a corporation’s
problems are pervasive but not yet
critical.
2. Captive Company Strategy involves giving up independence in
exchange for security.
3. Sell-out/Divestment Strategy makes sense if management can
still obtain a good price for its
shareholders and the employees
can keep their jobs by selling the
entire company to another firm.
4. Bankruptcy/Liquidation Strategy When a company finds itself in the
worst possible situation with a poor
competitive position in an industry
with few prospects, management
has only a few alternatives—all of
them distasteful.
Bankruptcy - Bankruptcy involves giving up
management of the firm to the courts in
return for some settlement of the
corporation’s obligations.
Liquidation - termination of the firm
Portfolio Analysis - process of analyzing
every aspect of product mix offered by the
company on the market to prepare the
detailed strategies to improve the growth
rate.
BCG Growth Share Matrix - Using the
BCG (Boston Consulting Group)
Growth-Share Matrix is the simplest way to
portray a corporation’s portfolio of
investments.
-
a corporation's product lines or
business units is plotted on the
matrix according to both the growth
rate of the industry in which it
competes and its relative market
share.
As a product moves through its life cycle, it
is categorized into one of four types for the
purpose of funding decisions:
-
-
-
-
Question marks (sometimes called
“problem children” or “wildcats”) are
new products with the potential for
success, but they need a lot of cash
for development.
Stars are market leaders that are
typically at the peak of their product
life cycle and are able to generate
enough cash to maintain their high
share of the market and usually
contribute to the company’s profits.
Cash cows typically bring in far
more money than is needed to
maintain their market share.
Dogs have low market share and do
not have the potential (because they
are in an unattractive industry) to
bring in much cash.
BCG GROWTH SHARE MATRIX SOME
SERIOUS LIMITATIONS:
- The use of highs and lows to form four
categories is too simplistic.
-The link between market share and
profitability is questionable.
-Growth rate is only one aspect of industry
attractiveness.
-Product lines or business units are
considered only in relation to one
competitor: the market leader. Small
competitors with fast-growing market shares
are ignored.
-Market share is only one aspect of overall
competitive position.
GE BUSINESS SCREEN - in contrast to the
BCG Growth-Share Matrix, includes much
more data in its two key factors than just
business growth rate and comparable
market share.
-
It includes nine cells based on
long-term industry attractiveness
and business strength competitive
position.
To plot product lines or business units
on the GE Business Screen, follow these
four steps:
●
●
●
●
Select criteria to rate the industry for
each product line or business unit.
Select the key factors needed for
success in each product line or
business unit.
Plot each product line’s or business
unit’s current position on a matrix.
Plot the firm’s future portfolio,
assuming that present corporate and
business strategies remain
unchanged.
This portfolio matrix have some
shortcomings:
●
●
●
It can get quite complicated and
cumbersome.
The numerical estimates of industry
attractiveness and business
strength/competitive position give
the appearance of objectivity, but
they are in reality subjective
judgments that may vary from one
person to another.
It cannot effectively depict the
positions of new products or
business units in developing
industries.
Advantages of Portfolio Analysis:
●
●
●
●
encourages top management to
evaluate each of the corporation’s
businesses individually and to set
objectives and allocate resources for
each.
stimulates the use of externally
oriented data to supplement
management’s judgment.
raises the issue of cash-flow
availability for use in expansion and
growth
Its graphic depiction facilitates
communication
Limitations of Portfolio Analysis:
●
●
●
●
●
●
Defining product/market segments is
difficult
It suggests the use of standard
strategies that can miss
opportunities or be impractical.
It provides an illusion of scientific
rigor when in reality positions are
based on subjective judgments.
Its value-laden terms such as cash
cow and dog can lead to self-fulfilling
prophecies.
It is not always clear what makes an
industry attractive or where a
product is in its life cycle.
Naively following the prescriptions of
a portfolio model may actually
reduce corporate profits if they are
used inappropriately.
Managing Strategic Alliance Portfolio:
●
●
Strategic alliances can also be
viewed as a portfolio of
investments—investments of money,
time, and energy.
The way a company manages these
intertwined relationships can
significantly influence corporate
competitiveness.
●
Alliances are thus recognized as an
important source of competitive
advantage and superior
performance.
Four tasks of multi-alliance management
that are necessary for successful
alliance portfolio management:
●
●
●
●
Developing and implementing a
portfolio strategy for each business
unit and a corporate policy for
managing all the alliances of the
entire company.
Monitoring the alliance portfolio in
terms of implementing business unit
strategies and corporate strategy
and policies
Coordinating the portfolio to obtain
synergies and avoid conflicts among
alliances
Establishing an alliance
management system to support
other tasks of multi-alliance
management
CORPORATE PARENTING - in contrast,
views a corporation in terms of resources
and capabilities that can be used to build
business unit value as well as generate
synergies across business units.
- generates corporate strategy by focusing
on the core competencies of the parent
corporation and on the value created from
the relationship between the parent and its
businesses.
Corporate Headquarters - The primary job
of corporate headquarters is, therefore, to
obtain synergy among the business units by
providing needed resources to units,
transferring skills and capabilities among
the units, and coordinating the activities of
shared unit functions to attain economies of
scope (as in centralized purchasing).
DEVELOPING A CORPORATE
PARENTING STRATEGY
Campbell, Goold, and Alexander
recommend that the search for
appropriate corporate strategy involves
three analytical steps:
1. Examine each business unit (or target
firm in the case of acquisition) in terms of its
strategic factors.
2. Examine each business unit (or target
firm) in terms of areas in which performance
can be improved.
3. Analyze how well the parent corporation
fits with the business unit (or target firm).
HORIZONTAL STRATEGY AND
MULTIPOINT COMPETITION
Horizontal Strategy - corporate strategy
that cuts across business unit boundaries to
build synergy across business units and to
improve the competitive position of one or
more business units.
Multipoint Competition -large
multi-business corporations compete
against other large multi-business firms in a
number of markets. These multipoint
competitors are firms that compete with
each other not only in one business unit, but
also in a number of business units.